Block deals and bulk deals, both in buy side and sell side in equity markets, indicate that there is an interest building up in case of buy up or a waning of interest in case of sell. These deals do give investors some important signals regarding the broad trends and the interest among certain specific participants in the market. Block and bulk deals are different and let us discuss the same in detail.
Block deals
A block deal is defined as a single trade in which shares greater than 5,00,000 in number or more than Rs 10 crore in value are traded. Such deals are transacted during a special trading window called the block deal window. As block deals in the equity market happen during a separate trading window, they are not visible to retail investors either in the electronic order book or in the volume charts in the trading platform.
This trading window operates in two shifts of 15 minutes each from 8:45 AM to 9:00 AM as a first shift and from 2:05 PM to 2:20 PM as a second shift. Block deals are transacted as per the block reference price. Orders can be placed only with ±1% of the reference price. The reference price is arrived at differently for each of the two trading windows. For the morning shift, it is the previous day’s closing price. For the afternoon shift, it is the volume-weighted average price of the share concerned between 1:45 PM and 2:00 PM. Unmatched orders in block deals are cancelled and not carried forward into the next trading window. So, if a block deal order placed in the first shift cannot be matched, it is cancelled, and is not carried forward into the second shift.
Bulk deals
A bulk deal is a deal wherein the total quantity of shares bought or sold is more than 0.5% of the share capital of the company. It could be transacted either through the normal trading window or during the block trading window. Generally, when market participants such as financial institutional investors or mutual fund houses or high net worth investors buy a large block of shares in a particular company, they prefer to use sliced trades throughout the day because this way buyers can reduce their overall cost of buying.
Similarly, in case of bulk selling also, the sliced trade approach helps them get a better selling price. As bulk deals happen during normal trading hours, it is visible to all market participants and shows up in the volume charts in trading platforms and dynamically influences stock prices in real-time. The broking house which facilitates such the bulk deal needs to inform the exchange about the details of the bulk deal like the amount of the transaction, the identity participants, etc., within one hour of close of trade. A bulk deal could also be transacted during the block trading window if it fulfils the conditions for block trading.
For example, if a transaction in a particular share exceeds 0.5% of the total listed shares of the company, and is greater than `10 crore in value, then the parties involved in such a transaction have the option of either transacting it in the block trading window or during the regular market hours as a bulk deal. In case the parties want the details of the deal to remain private until they are disclosed to the bourses, they may opt for the bulk trading window option.
Impact on prices
Bulk and block deals are evident of interest building up or waning in a particular share. However, these signals need to be processed meticulously and matched with other trends, indicators, etc., to arrive at an investment decision. A mere execution of a bulk order need not mean that a particular stock is likely to move in the direction of the bulk trade. However, repeated bulk transactions in a particular direction ( buy or sell) may be indicative of interest in the share in the direction of the bulk trade.
Block deals and bulk deals are two types of market transactions executed by different types of investors. Investors could use such data as one among the multiple variables in devising their investment strategy.
The writer is a professor of finance and accounting, Indian Institute of Management, Tiruchirappalli
from | The Financial Express https://ift.tt/gx0YCZ5
https://ift.tt/loTLRf5 Anish Mondal
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